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District Court of Appeal, Second District, Division 3, California.



Nos. 16739, 16740.

Decided: July 14, 1949

Ray L. Chesebro, City Attorney, Bourke Jones, Assistant City Attorney, and Lester L. Lev, Deputy City Attorney, Los Angeles, for appellants. Ball, Hunt and Hart and Joseph A. Ball, Long Beach, for respondents.

Appeals by defendants from judgments adjudging that Ordinance 91,411 of Los Angeles insofar as it attempts to impose a license tax upon gross receipts derived by plaintiffs as independent contractors in the rendering of services and in the making of repairs to ships which are engaged solely and exclusively in interstate and foreign commerce is invalid and unconstitutional, and permanently enjoining defendants from collecting the tax. The cases were tried upon written stipulations of facts and are submitted here on agreed statements. Rules on Appeal, Rule 6, 22 Cal.2d 6.

Each plaintiff is engaged wholly and exclusively in the business of contracting for and rendering services to ships which are employed only in interstate and foreign commerce at a time while said ships are upon the waters of the Pacific Ocean and within the harbors of Los Angeles, Long Beach, San Diego, Newport-Balboa and Port Hueneme. These harbors are within the municipal boundaries of the respective cities. The services are rendered under contract with the owners of the ships and while they are tied to docks or anchored in the harbors. The services are rendered by employees of plaintiffs under their direction and control either at the dock or on board ship. The services consist of painting the sides and other parts of ships, removing scale, cleaning tanks, chain lockers, boilers, furnaces, condensers, engine rooms, airducts, removing ballast, cleaning oil spilled by ships from the harbor waters, sandblasting ships' sides, scaling decks, handling ships' stores by taking them from trucks of provision merchants at the dock, trucking them from the dock onto the ships, and placing them in storerooms on board. All of the services are done only by employees of each plaintiff who are members of Painters' and Scalers' Union, a subsidiary of International Longshoremen's and Warehousemen's Union. All of the employees are under the direction and control of supervisors or foremen employed by plaintiffs. The contracts of plaintiffs provide for specific work to be done under the direction and control of plaintiffs to the satisfaction of the shore side representative, either port manager, port captain or agent for the shipowners. No ship's officer or employee has supervision over, or the right to direct or control, the work of the employees of plaintiffs.

Ordinance 91,411 of Los Angeles in section 21,190 provides that every person engaged in any means of livelihood as an independent contractor and not as an employee of another shall pay a license fee of $12.00 per year for the first $12,000.00 or less of gross receipts and in addition $1.00 per year for each additional $1000.00 or fractional part thereof, and that ‘As used in this section, the term ‘gross receipts' does not include: 1. Receipts from [any] means of livelihood, which this city is prohibited from taxing under the Constitution of laws of the United States. * * *’

‘Findings of fact were waived. As we have stated, the judgment in each case adjudges that the ordinance insofar as it attempts to impose a license tax upon the gross receipts of plaintiffs in the rendition of the services described is invalid and unconstitutional, in that it purports to impose a license tax upon the gross receipts of an occupation or business which is wholly and integrally a part of interstate and foreign commerce, and in that it unduly burdens interstate and foreign commerce.

Appellants' assignments of error are: 1. that the business of furnishing maintenance and repair services to ships engaged exclusively in interstate and foreign commerce is not such an integral part of interstate and foreign commerce as to exclude such business from local taxation; 2. The imposition of a business license tax based upon the gross receipts of the business of furnishing maintenance and repair services to ships engaged solely in interstate and foreign commerce does not constitute an undue burden on interstate or foreign commerce. Appellants concede that the business of furnishing maintenance and repair services to ships engaged exclusively in interstate and foreign commerce is related to such commerce. They argue that the business is not itself interstate or foreign commerce and that it has a definite local aspect and character which is subject to state jurisdiction and control. Respondents say that Los Angeles is prohibited from taxing gross receipts from services rendered by plaintiffs to ships in navigation between the various states and foreign nations by Article I, section 8, clause 3 of the Constitution of the United States, the ‘Commerce Clause’, and Article I, section 10, clause 2, the ‘Import-Export Clause.’ The apportionment of gross receipts between business conducted inside and outside of Los Angeles is not in issue.

The tax imposed is for the privilege of carrying on an occupation. The gross receipts furnish the basis for measuring the amount of the tax. Union Pac. R. Co. v. City of Los Angeles, 53 Cal.App.2d 825, 830, 128 P.2d 408.

Article I, section 8, clause 3 of the Constitution of the United States provides that the Congress shall have power ‘To regulate Commerce with foreign Nations, and among the several States, * * *.’

A ship in a harbor, even though docked, is engaged in commerce if it remains in readiness for another voyage. Carumbo v. Cape Cod S. S. Co., 1 Cir., 123 F.2d 991, 995.

The force of the commerce clause was stated in the late case of Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 276, 91 L.Ed. 265: ‘Our starting point is clear. In two recent cases we applied the principle that the Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of commerce among the States, but by its own force created an area of trade free from interference by the States. In short, the Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States. Southern Pacific Co. v. Arizona, 325 U.S. 761, 65 S.Ct. 1515, 89 L.Ed. 1915; Morgan v. Virginia, 328 U.S. 373, 66 S.Ct. 1050, [90 L.Ed. 1317, 165 A.L.R. 574]. In so deciding we reaffirmed, upon fullest consideration, the course of adjudication unbroken through the Nation's history. This limitation on State power, as the Morgan case so well illustrates, does not merely forbid a State to single out interstate commerce for hostile action. A State is also precluded from taking any action which may fairly be deemed to have the effect of impeding the free flow of trade between States. It is immaterial that local commerce is subjected to a similar encumbrance. It may commend itself to a State to encourage a pastoral instead of an industrial society. That is its concern and its privilege. But to compare a State's treatment of its local trade with the exertion of its authority against commerce in the national domain is to compare incomparables.’ See, also, Richfield Oil Corp. v. State Board of Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80.

We think appellants' contentions are fully and completely answered, and our decision controlled, by the decisions of the Supreme Court of the United States in Puget Sound Stevedoring Co. v. Tax Commission, 1937, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68, and Joseph v. Carter & Weekes Stevedoring Co., 1947, 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993. The Puget Sound case determined the constitutional validity of a statute of Washington which laid a tax upon the business of a stevedoring company, the amount of which was measured by a percentage of the gross receipts. The statute imposed the tax upon all business activities within the state for the privilege of engaging in business therein. Wash. Laws 1935, chap. 180. The company was engaged in the general stevedoring business at ports on Puget Sound. At times it contracted with a shipowner or ship master to load or unload a vessel through its own employees, controlling and directing the work itself. At other times under its contract it did not undertake to control, direct, or supervise the work. It merely collected the longshoremen and supplied them to the vessel. There, as here, all vessels served were engaged exclusively in interstate or foreign commerce. The suit was to enjoin collection of the tax. The Supreme Court of Washington upheld the tax upon the ground that the stevedoring company was an independent contractor engaged in a local business. In holding the statute invalid so far as it applied to contracts of the taxpayer by which it undertook to load and unload vessels through its own employees, controlling and directing the work itself, Mr. Justice Cardozo, writing for the court, said, 58 S.Ct. 72, 73: ‘The business of appellant, in so far as it consists of the loading and discharge of cargoes by longshoremen subject to its own direction and control, is interstate or foreign commerce. Transportation of a cargo by water is impossible or futile unless the thing to be transported is put aboard the ship and taken off at destination. A stevedore who in person or by servants does work so indispensable is as much an agency of commerce as shipowner or master. ‘Formerly the work was done by the ship's crew; but, owing to the exigencies of increasing commerce and the demand for rapidity and special skill, it has become a specialized service devolving upon a class ‘as clearly identified with maritime affairs as are the mariners.’' Atlantic Transport Co. of West Virginia v. Imbrovek, 234 U.S. 52, 62, 34 S.Ct. 733, 735, 58 L.Ed. 1208 [1212], 51 L.R.A.,N.S., 1157. No one would deny that the crew would be engaged in interstate or foreign commerce if busied in loading or unloading an interstate or foreign vessel. Cf. Baltimore & O. S. W. R. Co. v. Burtch, 263 U.S. 540, 44 S.Ct. 165, 68 L.Ed. 433 [24 N.C.C.A. 42]. The longshoreman busied in the same task bears the same relation at the crew to the commerce that he serves. Indeed, for the purposes of the Merchant Marine Act ([June 5, 1920] 41 Stat. at L. 988, 1007 [chap. 250], § 33 [46 U.S.C.A. §§ 688, 861 et seq.]), a stevedore is a ‘seaman.’ International Stevedoring Co. v. Haverty, 272 U.S. 50, 47 S.Ct. 19, 71 L.Ed. 157, * * * The business of loading and unloading being interstate or foreign commerce, the state of Washington is not at liberty to tax the privilege of doing it by exacting in return therefor a percentage of the gross receipts. Decisions to that effect are many and controlling. [Citations.] The fact is not important that appellant does business as an independent contractor as long as the business that it does is commerce immune from regulation by the states. What is decisive is the nature of the act, not the person of the actor.'

The Joseph case, 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993, involved an ordinance of the City of New York similar to the statute of Washington considered in the Puget Sound case and to the ordinance of Los Angeles before us. The business of Carter & Weekes was general stevedoring, consisting of taking freight from a convenient place on the pier or lighter within New York City and storing it properly for safety and for handling in or near the outgoing vessels alongside or of similarly unloading a vessel on its arrival. The vessels moved in interstate commerce. In holding that the tax on the stevedoring company constituted an unconstitutional burden on commerce, the Supreme Court of the United States stated, 67 S.Ct. 817: ‘Petitioners recognize the force of the Puget Sound case as a precedent. Their argument is that subsequent holdings of this Court have indicated that the reasons which underlay the decision are no longer controlling in judicial examination of the constitutionality of state taxation of the gross proceeds derived from commerce, subject to federal regulation.’ The Court said that the rule that the Commerce Clause forbids undue interference by the states with interstate commerce ‘applies in full force to an unapportioned tax on the gross proceeds from interstate business, where the taxes were not in lieu of ad valorem taxes on property,’ and continued: ‘We do not think that a tax on gross income from stevedoring, obviously a ‘continuation of the transportation,’ is a tax apportioned to income derived from activities with the taxing state. The transportation in commerce, at the least, begins with loading and ends with unloading. Loading and unloading has effect on transportation outside the taxing state because those activities are not only preliminary to but are an essential part of the safety and convenience of the transportation itself. When we come to weigh the burden or interference of this tax on the gross receipts from interstate commerce, the purposes of that portion of the Commerce Clause—the freeing of business from unneighborly regulations that inhibit the intercourse which supplies reciprocal wants by commerce—is a significant factor for consideration. * * *

‘A power in a state to tax interstate commerce or its gross proceeds, unhampered by the Commerce Clause, would permit a multiple burden upon that commerce. This has been noted as ground for their invalidation. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 255, 58 S.Ct. 546, 548, 82 L.Ed. 823, 115 A.L.R. 944. The selection of an intrastate incident as the taxable event actually carries a similar threat to the commerce but, where the taxable event is considered sufficiently disjoined from the commerce, it is thought to be a permissible state levy. This result generally is reached because the local incident selected is one that is essentially local and is not repeated in each taxing unit. In the present case, the threat of a multiple burden, except in the few instances in the record of interstate, in distinction to foreign, commerce, is absent. The multiple burden on interstate transportation from taxation of the gross receipts from stevedoring arises from the possibility of a similar tax for unloading. The actual effect on the cost of carrying on the commerce does not differ from that imposed by any other tax exaction—ad valorem, net income or excise. Cf. Western Live Stock v. Bureau of Revenue, supra, 303 U.S. at page 254, 58 S.Ct. at page 548, 82 L.Ed. 823, 115 A.L.R. 944. We need consider only whether or not the loading and unloading is distinct enough from the commerce to permit the tax on the gross.

‘On precedent, the Puget Sound case is controlling. It was promptly and recently cited with approval. * * * Upon examination this history gives an impression that there has been a doubt as to the continued vitality of Puget Sound. We come not face to face with the problem of overruling or approving the case.

‘Since Puget Sound there has been full consideration of how far a state may go in taxing intrastate incidents closely related in time and movement to the interstate commerce. The cases that lend strongest support to petitioners' argument for overruling the Puget Sound decision have been referred to above. We comment further upon them. * * *

‘Though all of these cases were closely related to transportation in commerce both in time and movement, it will be noted that in each there can be distinguished a definite separation between the taxable event and the commerce itself. We have no reason to doubt the soundness of their conclusions.

‘Stevedoring is more a part of the commerce than any of the instances to which reference has just been made. Although state laws do not discriminate against interstate commerce or in actuality or by possibility subject it to the cumulative burden of multiple levies, those laws may be unconstitutional because they burden or interfere with commerce. See Southern Pacific Co. v. [State of] Arizona ex rel. Sullivan, 325 U.S. 761, 767, 65 S.C.t. 1515, 1519, 89 L.Ed. 1915. Stevedoring, we conclude, is essentially a part of the commerce itself and therefore a tax upon its gross receipts or upon the privilege of conducting the business of stevedoring for interstate and foreign commerce, measured by those gross receipts, is invalid. We reaffirm the rule of Puget Sound Stevedoring Company.’ Cf. Baltimore & O. S. W. R. Co. v. Burtch, 263 U.S. 540, 44 S.Ct. 165, 68 L.Ed. 433; Union Stock Yard & Transit Co. v. United States, 308 U.S. 213, 219, 60 S.Ct. 193, 84 L.Ed. 198, 206. The Joseph case has not been disapproved, distinguished, modified, or criticized; nor has its force been sapped in any later case arising under the Commerce Clause.

The doctrine that the loading and unloading of an interstate or foreign shipment is so closely related to the interstate transportation as to be practically a part of it is not limited to loading and unloading done by employees of an interstate carrier. Allesandro v. C. F. Smith Co., 6 Cir., 136 F.2d 75, 76, 149 A.L.R. 382. The work of keeping the instrumentalities used in interstate and foreign commerce in a proper state of repair while thus used is so closely related to such commerce as to be a part of it. Southern Pacific Co. v. Pillsbury, 170 Cal. 782, 790, 151 P. 277, L.R.A.1916E, 916.

If loading and unloading vessels engaged in interstate and foreign commerce is an integral part of such commerce and a tax measured by the gross receipts derived therefrom is an unconstitutional burden on such commerce, then unquestionably the services performed by plaintiffs constitute an integral part of that commerce and the tax is an unconstitutional burden thereon. The services are performed only upon interstate and foreign carriers at a time when they are engaged in interstate and foreign commerce. All the work is done on the vessels while they are on navigable waters and only during the course of their short stay in one of their many ports of call. The repairing and reconditioning and other services are rendered by plaintiffs to the end that the vessels may in a day or two resume their journey on the high seas. They are services which were formerly performed by the crew itself. They are traditionally and historically the work of seamen. International Stevedoring Co. v. Haverty, 272 U.S. 50, 47 S.Ct. 19, 71 L.Ed. 157, 160; Vojkovich v. Ursich, 49 Cal.App.2d 268, 121 P.2d 803. Due to the demand for speed and specialized services the work is now done in large part by ships' service companies just as stevedoring formerly done by the crew is now done largely by independent contractors.

The work performed by the plaintiffs bears the same relationship to commerce as does the work of the crew of the vessel. The services are a necessary and essential part of the transportation of the cargo. They not only fit the vessel for further voyage but aid in the shifting and handling of the cargo. They aid and supplement the services of the crew and longshoremen in fitting the vessels and adjusting their cargoes. The services performed necessarily and directly contribute to the more extended use of the vessels in commerce. Without such services, interstate and foreign traffic could not be carried on. The loading of ships' stores and shifting cargo in the holds, which is part of plaintiffs' work, is essentially stevedoring. The repair and maintenance of a vessel carrying cargo between the states and between foreign nations is as closely connected with interstate and foreign commerce as is the loading or unloading of the cargo. It is no answer to say that the services performed by plaintiffs consist in servicing an instrumentality by which commerce is transported and not the handling of the cargo itself which is the actual subject of commerce. Without an efficient instrumentality no cargo would be transported.

The incidents taxed lend themselves to repeated exactions and duplications in other jurisdictions. Such exactions tend to impede the free flow of commerce. A vessel traveling the high seas requires painting and scaling in nearly every port of call. If Los Angeles can tax the gross receipts derived from rendition of the type of services rendered by plaintiffs so can every port in which the vessel anchors or docks. One can readily conceive of the cost of transportation becoming prohibitive. There is a possibility of multiple burdens which was one of the bases for declaring the tax invalid in Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993.

We are of the opinion that the incidents taxed are so close to and so inseparably intertwined with interstate and foreign commerce as to be practically a part of it. None of them is a part of intrastate commerce. They are not sufficiently disjoined from interstate and foreign commerce as to open them to state taxation.

In support of the tax, we are referred to Union Brokerage Co. v. Jensen, 322 U.S. 202, 64 S.Ct. 967, 88 L.Ed. 1227, 152 A.L.R. 1072; Eastern Air Transport v. South Carolina Tax Comm., 285 U.S. 147, 52 S.Ct. 340, 76 L.Ed. 673; Department of Treasury v. Ingram-Richardson Mfg. Co., 313 U.S. 252, 61 S.Ct. 866, 85 L.Ed. 1313; Department of Treasury of Indiana v. Wood Preserving Corp., 313 U.S. 62, 61 S.Ct. 885, 86 L.Ed. 1188, and Memphis Natural Gas Co. v. Stone, 335 U.S. 80, 68 S.Ct. 1475, 92 L.Ed. 1832. The factual situations in those cases are not at all parallel with those in the cases at hand. The Union Brokerage case upheld a license tax on foreign corporations doing business in Minnesota paid for the privilege of using the state courts. The South Carolina case upheld a license tax on local intrastate sales. The Ingram-Richardson and Wood Preserving cases upheld a gross income tax on the fruits of an intrastate activity. The Wood Preserving case was distinguished in Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 91 L.Ed. 993, 67 S.Ct. 815. The Memphis case sustained a corporate franchise tax on a foreign corporation for the privilege of maintaining a pipe line through Mississippi. There was no attempt, as here, to tax gross receipts resulting from interstate activity. These cases do not furnish justification for the present tax. The validity of the Los Angeles ordinance as applied to the plaintiffs is to be determined upon a consideration of cases involving substantially similar factual situations and taxes. As said in Freeman v. Hewit, 329 U.S. 249, 256, 67 S.Ct. 274, 278, 91 L.Ed. 265: ‘While these permitted taxes may in an ultimate sense, come out of interstate commerce, they are not, as would be a tax on gross receipts, a direct imposition on that very freedom of commercial flow which for more than a hundred and fifty years has been the ward of the Commerce Clause.’

It is suggested that the tax is imposed upon events which occur within the taxing jurisdiction and at most upon purely localized incidents in furtherance of interstate and foreign commerce. This suggestion is answered by what was said by the court, speaking through Mr. Justice Rutledge, in Nippert v. Richmond, 327 U.S. 416, 423, 66 S.Ct. 586, 589, 90 L.Ed. 760, 764, 162 A.L.R. 844: ‘If the only thing necessary to sustain a state tax bearing upon interstate commerce were to discover some local incident which might be regarded as separate and distinct from ‘the transportation or intercourse which is' the commerce itself and then to lay the tax on that incident, all interstate commerce could be subjected to state taxation and without regard to the substantial economic effects of the tax upon the commerce. For the situation is difficult to think of in which some incident of an interstate transaction taking place within a state could not be segregated by an act of mental gymnastics and made the fulcrum of the tax. All interstate commerce takes place within the confines of the states and necessarily involves ‘incidents' occurring within each state through which it passes or with which is is connected in fact. And there is no known limit to the human mind's capacity to carve out from what is an entire or integral economic process particular phases or incidents, label them as ‘separate and distinct’ or ‘local,’ and thus achieve its desired result.'

The tax is not made valid because a similar tax is placed on local businesses. If the tax, either in fact or by the very threat of its incidence, imposes a burden on interstate or foreign commerce, it clashes with the Commerce Clause. As said in Freeman v. Hewit, 329 U.S. 249, 254, 91 L.Ed. 265, 67 S.Ct. 274, 275, 277: ‘It has been suggested that such a tax is valid when a similar tax is placed on local trade, and a specious appearance of fairness is sought to be imparted by the argument that interstate commerce should not be favored at the expense of local trade. So to argue is to disregard the life of the Commerce Clause. Of course a State is not required to give active advantage to interstate trade. But it cannot aim to control that trade even though it desires to control its own. It cannot justify what amounts to a levy upon the very process of commerce across State lines by pointing to a similar hobble on its local trade. It is true that the existence of a tax on its local commerce detracts from the deterrent effect of a tax on interstate commerce to the extent that it removes the temptation to sell the goods locally. But the fact of such a tax, in any event, puts impediments upon the currents of commerce across the State line, while the aim of the Commerce Clause was precisely to prevent States from exacting toll from those engaged in national commerce. The Commerce Clause does not involve an exercise in the logic of empty categories. It operates within the framework of our federal scheme and with due regard to the national experience reflected by the decisions of this Court, even though the terms in which these decisions have been cast may have varied. Language alters, and there is a fashion in judicial writing as in other things.’

The tax as applied to plaintiffs imposes a direct and immediate burden on interstate and foreign commerce and for that reason is invalid. The services taxed are not a detached aspect of commerce unrelated to objects of the Commerce Clause. They are an essential and integral part of commerce. It was pointed out in Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 275, 91 L.Ed. 265, that a tax on gross receipts is not merely a burden incident to effective administration. The net result of a tax on the gross receipts of plaintiff is to tax the privilege of transporting goods in interstate and foreign commerce.

In view of our conclusion, it is not necessary to consider whether the tax as applied to plaintiffs in invalid under the Import-Export Clause of the Constitution of the United States. U.S.Const. Art. I, sec. 10, clause 2; see, Richfield Oil Corp. v. State Board of Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80.

Judgments affirmed.

VALLÉE, Justice.

SHINN, P. J., and WOOD, J., concur.